Assignment of a Commercial Lease: Procedure and Documents

The assignment of a commercial lease is a crucial step in the transfer of a business (fonds de commerce). For the assignor and the assignee alike, the procedure involves strict legal obligations and requires a precise documentary file to be put together. Mastery of the procedural steps and of the supporting documents required determines the legal certainty of the transaction and avoids later disputes. This guide sets out the full commercial lease assignment procedure, the documents that must be gathered and the pitfalls to avoid in order to complete the transfer successfully.

Legal framework for the assignment of a commercial lease

The basis of the leasehold right

The commercial lease gives the tenant a genuine leasehold right (droit au bail), an intangible component of the business protected by Articles L.145-1 et seq. of the French Commercial Code. This leasehold right is a transferable asset, distinct from the other tangible and intangible components of the business.

The assignment of a commercial lease takes place through two distinct legal mechanisms depending on the circumstances. The leasehold right may be assigned on its own, independently of the business, or form part of an overall sale of the business including the client base, equipment and the other operating assets.

Distinction between assignment of the lease and sale of the business

The assignment of the leasehold right on its own transfers only the rights and obligations arising from the lease. The assignee becomes tenant of the premises but acquires no other operating asset. In the absence of a contrary provision, the tenant may assign its lease without the landlord's consent (Article 1717 of the French Civil Code); in practice, most commercial leases prohibit the assignment of the leasehold right on its own or make it subject to the landlord's approval. The price and tax treatment of this transaction are detailed in our article on the assignment of the commercial leasehold right.

The sale of the business including the leasehold right is a more complex transaction governed by Articles L.141-1 et seq. of the French Commercial Code. The buyer acquires all the components of the business and benefits from enhanced protection, in particular as regards continuation of the lease.

Preconditions to the assignment

Checking the lease clauses

Before starting any assignment procedure, a careful review of the lease is necessary to identify the clauses relating to assignment. Three main situations arise depending on the drafting of the contract.

A clause prohibiting assignment forbids the assignment of the leasehold right. It is lawful for an assignment of the leasehold right on its own, but is deemed unwritten insofar as it would prevent the tenant from assigning its lease to the purchaser of its business or undertaking (Article L. 145-16 of the French Commercial Code). Where it is valid, assignment requires the landlord's express consent, which the tenant may seek amicably.

An approval clause (clause d'agrément) makes the assignment subject to the landlord's prior authorisation. This authorisation may not be refused without a legitimate and serious reason, in accordance with the settled case law of the Cour de cassation. The landlord has a reasonable period in which to decide, generally set by the contract. On approval, service of notice (signification) and the assignor's joint and several guarantee, see our analysis of the landlord's levers of control over the sale of the business.

The absence of a specific clause makes the assignment free: Article 1717 of the French Civil Code recognises the tenant's right to assign its lease if this right has not been prohibited. The assignment must nevertheless be made enforceable against the landlord, in the manner provided for in the lease or, failing that, by service of notice (signification) or acceptance.

Assessing the assignee's creditworthiness

The landlord legitimately checks the assignee's financial capacity to meet the lease obligations. This assessment covers several cumulative criteria: the personal or corporate financial position, professional experience in the sector of activity, and the guarantees offered.

Financial documents for the last three years, recent bank statements and trade references are the items usually required. For companies, the annual accounts filed with the registry and the company's position with the social security bodies complete the file.

Procedure for assigning the commercial lease

Notification of the proposed assignment

The assignment procedure begins with notification of the proposal to the landlord, even where there is no express approval clause. This notification, preferably by bailiff's deed (commissaire de justice) or by registered letter with acknowledgement of receipt, must contain mandatory information.

The full identity of the assignee, the nature of the intended activity, the price for the assignment of the leasehold right and the payment terms are the minimum information required. The omission of material particulars may vitiate the procedure and justify a refusal of approval.

The landlord has, to reply, the period set by the lease. Its silence does not amount to acceptance, unless the law, custom, business dealings or particular circumstances provide otherwise (Article 1120 of the French Civil Code), or unless the lease stipulates that silence within the period amounts to approval.

Examination of the approval request

During the examination period, the landlord may request further information about the assignee. These requests must remain proportionate to the purpose of the assessment and may not concern discriminatory matters.

A request for additional supporting documents interrupts the initial period, which starts to run again once the documents required are supplied. This option allows the landlord to look into the matter more thoroughly without haste.

Personal or real security offered by the assignee weighs in favour of approval. A joint and several guarantor, a pledge or a security deposit strengthen the landlord's position and make acceptance easier.

Formalising the approval

The landlord's acceptance must be express and unequivocal. A mere acknowledgement of receipt or an absence of objection is not enough to establish approval, unless a specific contractual clause provides otherwise.

The notice of approval sets out any conditions imposed on the assignee. These conditions may concern the amount of the security deposit, the terms of payment of rent or the guarantees required. They must remain reasonable and proportionate.

A refusal of approval must be based on objective and verifiable grounds. Insufficient financial resources, incompatibility of the activity with the permitted use of the premises or the existence of legal proceedings are legitimate grounds.

Essential documents for the assignment

Documents relating to the existing lease

Putting together the documentary file begins with gathering the documents relating to the current lease. The original of the commercial lease or a certified true copy, together with all successive amendments, forms the documentary basis.

The initial entry condition report and any joint inspection reports drawn up during the lease make it possible to assess the obligations to make good the premises. These documents determine the release of the security deposit and the allocation of the costs of bringing the premises back into compliance.

Rent receipts for the last twenty-four months show that payments have been regular and that nothing is unpaid. This document reassures the landlord about the conduct of the outgoing tenant and eases the transition.

Identity and capacity documents

Full identification of the assignee requires recent civil status documents. For individuals, a copy of a valid identity card or passport, together with proof of address less than three months old, is the minimum required.

Legal entities must provide a K-bis extract less than three months old showing their registration with the Trade and Companies Register (Registre du commerce et des sociétés). This extract sets out the company name, corporate purpose, registered office address and the identity of the managers.

Examination of the corporate purpose is crucial to check compatibility with the activity permitted by the lease. A purpose that is too restrictive may require an amendment to the articles of association before the assignment.

Financial supporting documents

Demonstrating the assignee's creditworthiness relies on a set of recent and probative financial documents. The last three tax assessment notices or, for companies, the accounting balance sheets give a view of the ability to pay.

Bank statements for the last six months make it possible to assess day-to-day financial management and the regularity of cash flows. The absence of rejected payments or payment incidents is reassuring for the landlord.

A bank certificate of borrowing capacity or evidence of available own funds usefully completes the file. These documents show the ability to finance the acquisition and the future operation of the business.

Guarantees and sureties

The documents relating to the guarantees proposed formalise the security offered to the landlord. The joint and several guarantee agreement, made by private deed (acte sous seing privé) or notarial deed, binds the guarantor to compliance with the lease obligations.

The guarantor must have sufficient resources to cover the commitments given. Its financial supporting documents, similar to those of the principal assignee, make it possible to assess its actual creditworthiness.

Real security, such as the pledge of a business or the mortgage of a property, requires notarial deeds and registrations with the competent bodies.

Drafting and signing the deed of assignment

Mandatory content of the deed

The deed assigning the commercial lease must contain mandatory particulars to ensure its legal validity. Precise identification of the parties, the exact description of the leased premises and the references of the lease assigned are the essential elements.

A detailed description of the permitted activity avoids later disputes over whether the operation complies with the lease. This particular reproduces the exact wording of the permitted use clause (clause de destination) of the original lease.

The price for the assignment of the leasehold right and its payment terms are the subject of an express provision. This price may be paid in cash or in instalments as the parties agree.

Protective clauses

The deed of assignment generally includes clauses intended to protect the parties' interests. The warranty against eviction commits the assignor to compensate the assignee in the event of disturbance of its enjoyment of the premises.

The warranty against latent defects covers non-apparent defects in the premises that would make operation impossible or difficult. This warranty applies in particular to compliance with safety and accessibility standards.

A non-compete clause may limit the assignor's ability to carry on a similar activity within a defined geographical area. This limitation must be justified, proportionate and limited in time.

Registration formalities

The deed assigning the commercial lease must be registered with the tax office within one month of signature. This formality, mandatory on pain of a fine, gives the deed a certain date and allows it to be published.

Registration duties are calculated on the assignment price. The assignment of the leasehold right on its own is subject to the same rate as the sale of a business (Articles 725 and 719 of the French General Tax Code).

Publication of the assignment in the BODACC (French official gazette of civil and commercial announcements) informs third parties of the transaction. This publicity starts the period within which the assignor's creditors may object. The time limits, the content of the notice and the publication procedure are covered separately in our article on BODACC publication of the assignment.

Post-assignment obligations

Transfer of responsibilities

Signing the deed of assignment automatically transfers all the rights and obligations under the lease to the assignee. The assignee alone becomes liable for rent, service charges and taxes from the date the assignment takes effect.

The assignor remains liable for rent debts arising before the assignment, unless the landlord expressly releases it. This retrospective liability may be limited by appropriate contractual clauses.

The joint condition report drawn up on the transfer fixes the respective responsibilities for the condition of the premises. This document is decisive for the release of the assignor's security deposit.

Notification of third parties

The change of tenant must be notified to energy and telecommunications suppliers and to public services to ensure continuity of supply. This step avoids interruptions of service that would harm the business.

Notification to the social security and tax bodies allows the administrative records to be updated. The assignee must declare its new activity within the statutory time limits to avoid penalties.

Insurance contracts need to be adapted to cover the risks linked to the new operation. As the automatic transfer of insurance policies cannot be assumed, a review is necessary.

Monitoring the transition

The transition period requires careful monitoring to detect and resolve practical difficulties. Relations with the landlord, the neighbours and the authorities may require adjustments.

Compliance with environmental and safety obligations now falls on the assignee. A compliance audit identifies any upgrading that may be necessary.

Setting up new management and accounting systems makes it easier to monitor the lease obligations. This preventive organisation limits the risk of future disputes.

Disputes and frequent difficulties

Landlord's refusal of approval

The landlord's refusal of approval may be challenged before the tribunal judiciaire (judicial court) where it appears unjustified or discriminatory. The burden of proving that the refusal is abusive rests on the claimant.

Legitimate grounds for refusal include manifestly insufficient financial guarantees, incompatibility of the activity with the permitted use of the premises or the existence of criminal proceedings against the assignee. These grounds must be objective and proportionate.

The court may set aside an abusive refusal and order that the assignment be authorised. This procedure, which is lengthy and costly, requires a prior analysis of the prospects of success.

Procedural defects

Irregularities in the assignment procedure may jeopardise the validity of the transaction. Omission of mandatory particulars in the notification, failure to observe time limits or the absence of a required authorisation are defects that may lead to annulment.

An incomplete or late notification may justify annulment of the assignment by the court. This drastic sanction protects the landlord's rights and ensures that the procedure is regular.

Regularisation of procedural defects remains possible where the landlord has suffered no loss. This amicable solution avoids the delays and costs of contentious proceedings.

Difficulties linked to financing

Failure to obtain financing for the assignment may jeopardise completion of the transaction even after the deed has been signed. Conditions precedent relating to obtaining a loan protect the assignee against this risk.

The assignee's default in paying the price may justify termination of the assignment. This situation exposes the assignor to recovery difficulties and financial losses.

Taking out credit insurance or putting in place bank guarantees secures payment of the assignment price. These mechanisms reassure the assignor and make it easier to conclude the transaction.

Frequently asked questions

Can a commercial lease be assigned without the landlord's consent? Yes, in the absence of a contrary clause: Article 1717 of the French Civil Code allows the tenant to assign its lease if this right has not been prohibited. In practice, most commercial leases contain an approval clause or prohibit the assignment of the leasehold right on its own. A clause prohibiting assignment to the purchaser of the business is, however, deemed unwritten (Article L. 145-16 of the French Commercial Code).

How long does the landlord have to reply to an approval request? The period depends on the provisions of the lease; no statutory period is provided for. The landlord's silence does not amount to acceptance, unless the lease provides otherwise or in particular circumstances (Article 1120 of the French Civil Code).

Does the assignment of the lease require a notary? The involvement of a notary is not mandatory for the assignment of a commercial lease. A private deed is sufficient, but a notarial deed offers enhanced legal certainty and eases the registration formalities.

Does the assignor remain liable for debts after the assignment? The assignor remains liable for rent debts arising before the assignment, unless the landlord expressly releases it. For later debts, its liability ceases as soon as the assignment takes effect, subject to any guarantee clauses given.

What are the costs of assigning a commercial lease? The costs include registration duties, lawyers' or notaries' fees, and publication costs. The assignment of the leasehold right, whether on its own or included in the sale of the business, bears the rate applicable to sales of businesses (Articles 719 and 725 of the French General Tax Code): 0% on the portion of the price not exceeding €23,000, 3% on the portion between €23,000 and €200,000, and 5% above that, additional taxes included.

Does a promise to assign bind the parties definitively? A validly formed promise to assign binds the promisor for the agreed period. The beneficiary may seek a court order compelling completion of the assignment if the conditions are met. The landlord's consent nevertheless remains necessary for definitive validity.

How is the price of assigning a commercial lease assessed? The price depends on several factors: commercial location, remaining term of the lease, amount of the rent compared with the market, and acquired rights (key money (pas-de-porte), fittings). The involvement of a property valuer or a statutory auditor (commissaire aux comptes) may be useful for large transactions.

The assignment of a commercial lease calls for careful preparation and compliance with a strict procedure. The success of the transaction depends on putting together a complete documentary file, negotiating amicably with the landlord and anticipating potential difficulties. Given the complexity of this area, the support of a legal professional makes the process safer and improves the chances of success.